Crowe advises business owners to consider best use of cash reserves ahead of the Budget
PUBLISHED: 17:32 12 February 2019 | UPDATED: 17:32 12 February 2019
"Sometimes, by being cautious and 'leaving money be' in your company, you could be threatening your own long term planning or even the future succession long term prospects for your business."
Business owners should give careful consideration to when they choose to extract profits from their company, Nick Latimer, a Tax Partner in the Cheltenham office of national audit, tax, advisory and risk firm, Crowe, warns.
Nick Latimer said: “Personal taxes, at least, will most likely need to rise this year, regardless of who the Chancellor is, or which political party is in power. With the Chancellor hinting that a Budget may be held immediately after Brexit, any increase to taxes may not be too far away.
“We don’t know currently exactly how Brexit will play out, but it still seems likely that we will be leaving the European Union on 29 March this year.”
Chancellor Philip Hammond warned in October 2018 that a no-deal Brexit would require an emergency Budget, and that the Treasury would take “appropriate fiscal measures” to protect the UK economy in such a scenario.
Latimer added: “Our experience suggests that a lot of companies in Gloucestershire and The Cotswolds, even many of the smaller SMEs, are sitting on cash.
“Anecdotal evidence indicates that business owners are both reluctant to pay dividend taxes and personal tax before they have to, and are also stockpiling cash for a rainy day.”
He said there were two issues here that needed careful consideration.
Firstly, businesses need to consider whether the tax situation will improve after a post-Brexit emergency budget, and secondly whether they have made maximum use of their potential to invest, with capital allowances and Research and Development tax credits in mind.
Latimer said: “Brexit has taken a large amount of parliamentary time – for obvious reasons – but this also means, to an extent, that the government has not had the capacity to dedicate all the time and resources required in other areas.
“There is no doubt that, the Chancellor, whoever that may be in March, will have to raise personal taxes as headline grabbing corporate tax increases simply do not raise enough money for the Treasury.
“Depending on what happens over the coming months, hindsight might tell us in six months’ time that taking profits now was the wiser choice.
“Similarly, it is possible that business tax allowances might stay the same, but it is possible that they may be subjected to greater restrictions or exclusions.
“Rather than wholesale business tax rises, we are more likely to see the usual tinkering around the edges, which will mean increasing restrictions on what can be claimed and by whom.
“Again, hindsight might show that deciding to bring forward or confirm investment plans now was the wiser choice.”
Latimer also pointed out that accumulation of cash or other ‘non business assets’ in a company can threaten entitlement to Entrepreneurs Relief for Capital Gains Tax (CGT), or even Business Property Relief for Inheritance Tax (IHT).
“Sometimes, by being cautious and ‘leaving money be’ in your company, you could be threatening your own long term planning or even the future succession long term prospects for your business.”
He said it was essential that owner-directors of business, both large and small, in Gloucestershire and The Cotswolds, looked at their corporate and personal tax position in the round and understood where in the business lifecycle they currently stood.
“Taking profits, or investing for the future, are issues that need to be considered against an understanding of where your business is in the lifecycle – on the upswing and still growing, or are you preparing for succession or a sale with retirement foremost in mind?”
Crowe runs regular seminars and events for all sizes of business. For more information on local events relevant to your company, see crowe.com/events.